Civil Aviation Safety Authority

Civil Aviation Safety Authority

COST RECOVERY IMPACT STATEMENT

1 August 2011-30 June 2012

Charging for regulatory services – Maintenance Fees Regulations

CONTENTS

1OVERVIEW

1.1Purpose

1.2Background

2AUSTRALIAN GOVERNMENT COST RECOVERY POLICY

2.1What is a significant cost recovery arrangement?

2.2What is cost recovery?

2.3Why have cost recovery?

2.4Principles underpinning CASA’s cost recovery arrangements

2.5Economic efficiency

2.6Design principles

2.7Operational principles

2.8Efficiency principles

3POLICY REVIEW – ANALYSIS OF ACTIVITIES

3.1Description of activities

3.2Economic efficiency

3.3Design principles

3.4Operational principles

3.5Conclusion

4DESIGN AND IMPLEMENTATION

4.1Basis of charging – fee or levy

4.2Legal requirements for the imposition of charges

4.3Costs to be included in charges

4.3.1CASA’s activity based cost model methodology

4.4Outline of charging structure

4.5Summary of charging arrangements

4.6Recommended new additional fees

4.7Transitional arrangements between maintenance and fees regulations

5ONGOING MONITORING

5.1Monitoring mechanisms

5.2Stakeholder consultation

5.3Periodic review

6CERTIFICATION

7COST RECOVERY LINKS

8ATTACHMENT A

9ATTACHMENT B - Responses to June 2011 CRIS

1OVERVIEW

1.1Purpose

The Australian Government Cost Recovery Guidelines (the Guidelines), July 2005, provides guidance for those agencies with significant cost recovery arrangements on when they will be required to prepare a Cost Recovery Impact Statement (CRIS). The Guidelines require a CRIS when new cost recovery arrangements are proposed, or when there are material amendments to existing cost recovery arrangements. The purpose of a CRIS is to transparently demonstrate compliance with the Guidelines.

CASA has a current CRIS – Phase 2 for all of its cost recovery arrangements. The CRIS – Phase 2 was published on 29 May 2007 and covers the period from July 2007 through to June 2012. This CRIS - Maintenance Fees Regulations, supplements the current 2007 CRIS – Phase 2.

This CRIS - Maintenance Fees Regulations was prepared for the adoption of significant changes in the Civil Aviation (Fees) Regulations 1995 to accommodate the introduction of new Civil Aviation Safety Regulation Parts 42, 66, 145 and 147 (Maintenance Regulations Suite). In addition, a number of fees that were not included in the 2007 fees regulation amendment are also included.

1.2Background

CASA has been collecting fees since its inception. The March 2005 Long Term Funding Strategy (LTFS) and the subsequent CRIS provided a three phased approach for CASA to introduce full cost recovery for its regulatory services. Phase 1 commenced on 1 January 2006 with a target cost recovery amount of $10.5m in 2006-07. Phase 2 commenced on 1 July 2007 with a target cost recovery amount of $15m in 2007-08 (this is the current CRIS). It was intended that CASA would move to full cost recovery by implementing Phase 3 on 1 July 2008 – this phase did not progress. However during 2008-09, the government stated its intention of preparing a National Aviation Policy Statement, now known as the Flight Path to the Future, 2009 Aviation White Paper (AWP).

The then Minister for Infrastructure, Transport, Regional Development and Local Government released the National Aviation White Paper,Flight Path to the Futureon 16 December 2009. The AWP committed the government to reforming the suite of CASA’s regulations on licensing and flight operations.

The AWP specified that CASA’s regulatory service fees will be capped, in real terms, up until the end of 2015[1]. This effectively means that regulatory cost recovery should not exceed $15m in real terms until end 2015. This policy approach is consistent with the partial cost recovery arrangements that have been operating in CASA for some time. This will remain the policy position for CASA until the next long term funding strategy for CASA is provided to government for consideration in the 2013-14 budget development cycle[2]. The intent of this policy position is to reduce the burden of regulatory charges on regional and general aviation[3].

In December 2002, the Australian Government adopted a formal cost recovery policy to improve the consistency, transparency and accountability of its cost recovery arrangements and promote the efficient allocation of resources. Cost recovery policy is administered by the Department of Finance and Deregulation and is outlined in the Australian Government Cost Recovery Guidelines and as amended in Finance Circular 2005-09 and 2008-08. The underlying principle of the policy is that agencies should set charges to recover all the costs of products or services where it is efficient and effective to do so, where the beneficiaries are a narrow and identifiable group and where charging is consistent with Australian Government policy objectives.

The policy applies to all Financial Management and Accountability Act 1997 (FMA Act) agencies and to relevant Commonwealth Authorities and Companies Act 1997 (CAC Act) bodies that have been notified, under sections 28 or 43 of the CAC Act, of which CASA is one, to apply the cost recovery policy. These entities are collectively referred to as ‘agencies’ for the purposes of the Guidelines. In line with the policy, individual portfolio ministers are ultimately responsible for ensuring agencies’ implementation and compliance with the cost recovery guidelines.

CASA has adopted the 14 underlying principles for cost recovery outlined in the Australian Government Cost Recovery Guidelinesplus an additional principle of showing consideration of horizontal equity (avoiding cross-subsidisation) when determining cost recovery arrangements.

CASA has a number of pieces of legislation that establish the legal framework within which CASA conducts its operations and fulfils its obligations as directed by government. From a cost recovery perspective, the legislative framework is predominately shaped by the Commonwealth Authorities and Companies Act 1997 and Civil Aviation Act 1988. It is from the Civil Aviation Act 1988 that CASA draws its legal right to seek cost recovery for products and services.

CASA currently has 222 individual fee items supporting the current regulatory framework, split across 24 parts.

This CRIS focuses on those fee regulations (Part 2 Certificates of approval, aircraft maintenance engineer licences, airworthiness authorities and aircraft welding authorities and Part 3 Maintenance) which support the maintenance regulations. Currently there are 44 individual maintenance fee items.

The new Maintenance Regulations Suite identifies 27 individual fees. In addition, 13 individual fees for activities relevant to the 2007 Fees Regulation amendment will now be added to coincide with the new regulations. These fees had previously been charged under related fees but most have been charged under Part 24 Other miscellaneous services.

Diagram 1 below provides a diagrammatic representation of CASA’s regulatory framework, with the new Maintenance Regulations Suite highlighted.

Page 1 of 72

Page 1 of 72

CASR Regulatory Structure Key

2AUSTRALIAN GOVERNMENT COST RECOVERY POLICY

2.1What is a significant cost recovery arrangement?

To determine whether a cost recovery arrangement is considered ‘significant’, both the revenue generated, and the impact of cost recovery on stakeholders, need to be taken into account.

A significant cost recovery arrangement is one where:

• an agency’s total cost recovery receipts equal $5 million or more per annum—in this case every cost recovery arrangement within the agency is considered, in the first instance, to be significant, regardless of individual activity totals; or
• an agency’s cost recovery receipts are below $5 million per annum but stakeholders are likely to be materially affected by the cost recovery initiative; or
• ministers determine the cost recovery arrangement to be significant on a case-by-case basis.

A CRIS should be prepared for all significant cost recovery arrangements.

The cost recovery guidelines must be applied to review cost recovery activities:

• under an agreed schedule of reviews announced by the Australian Government; or
• whenever there is a change to the cost recovery arrangements; or
• where new cost recovery arrangements are to be introduced.

2.2What is cost recovery?

Cost recovery is the recovery of some or all of the costs of a particular activity. Australian Government cost recovery charges fall into two broad categories:

• fees for goods and services; and
• cost recovery charges (primarily fees and levies, but also excises and customs duties).

Cost recovery is different to general taxation. Some levies or taxes are used to raise cost recovery revenues. The hypothecation or ‘direct link’ between the revenue and the funding of a specific activity or service distinguishes such cost recovery charges from general taxation.

General taxation, on the other hand, is a compulsory extraction of money by a public authority for public purposes, enforceable by law, and which is not a payment for services rendered.

2.3Why have cost recovery?

Used appropriately, cost recovery can provide an important means of improving the efficiency with which Australian Government products and services are produced and consumed through allocation and consumption of scarce resources.

Charges for goods and services can give an important message to users or their customers about the cost of resources involved. It may also improve equity by ensuring that those who use Australian Government products and services, or who create the need for regulation, bear the costs.

2.4Principles underpinning CASA’s cost recovery arrangements

The Australian Government Cost Recovery Guidelines contain 14 key principles designed to improve the consistency, transparency and accountability of the Australian Government cost recovery arrangements and promote the efficient allocation of resources. CASA has applied these principles in the following manner.

Regulatory and non-regulatory agencies undertake a range of activities. Cost recovery may not be appropriate for some of these activities. For example, cost recovery may not be warranted where it:

• is not cost effective;
• would be inconsistent with government policy objectives; or
• would stifle competition and industry innovation unduly (for example through ‘free rider’ effects).

The guidelines require the following regulatory activities to be assessed for cost recovery:

• registration and approvals;
• issuing exclusive rights, licences and privileges;
• monitoring ongoing compliance with regulations; and
• investigation and enforcement.

The Australian Government Cost Recovery Guidelines require that cost recovery arrangements be assessed against cost recovery principles contained in the Guidelines. These principles can be broadly grouped into:

• economic efficiency;
• design principles;
• operational principles;
• efficiency principles; and
• overarching principles.

2.5Economic efficiency

The general principles relating to economic efficiency support cost recovery as an important means of improving economic efficiency, by:

• sending an important pricing message to users or customers about the costs of resources involved;
• reducing the call on general taxation revenue and avoiding the high efficiency losses from higher taxation revenue;
• improving horizontal equity by ensuring that consumers or beneficiaries of products pay for the costs; and
• improving agency performance through transparency of costs and increased cost-consciousness in both the agency and users.

2.6Design principles

Design principles require that cost recovery arrangements:

• do not cross-subsidise across industry sectors;
• be subject to the same public administration principles that apply to all government activities; and
• incorporate an appropriate level of industry consultation to help drive agency efficiency.

2.7Operational principles

Operational principles require that:

• all cost recovery arrangements should have clear legal authority;
• cost recovery charges should be linked as closely as possible to the actual costs of activities or products;
• costs recovered should relate to specific activities, not the agency that provides them;
• targets should not be set for the level of costs recovered;
• over-recovery is inappropriate;
• outputs, or activities that have ‘public good’ characteristics may be taxpayer funded; and
• costs recovered may exclude activities undertaken for government where they are not integral, or directly related, to the provision of regulatory activities.

2.8Efficiency principles

A key principle is that cost recovery should be based on ‘the efficient costs’ of the activity and should avoid:

• regulatory creep, where additional regulation is imposed without adequate scrutiny;
• gold plating, where unnecessarily high standards or facilities are adopted or there is simply over-regulation; and
• cost padding, where costs are artificially inflated in the knowledge that all costs can be recovered.

3POLICY REVIEW – ANALYSIS OF ACTIVITIES

3.1Description of activities

CASA undertakes a number of activities under the Civil Aviation Act 1988 and its subsequent regulations and orders. In this CRIS only those activities that form CASA’s new maintenance regulatory framework were reviewed. These are the activities that are subject to cost recovery. It is estimated that there are 14,000 registered aircraft operating in Australia, supported by over 767 maintenance organisations and 7,460 licensed engineers registered with CASA.

As a general description, CASA seeks fees for regulatory services that provide an individual or an organisation with privileges, access rights or approvals to perform or provide aviation services to the travelling public, the aviation sporting sector and other general aviation enthusiasts as prescribed under the legislative regulatory framework described in Section 4.2.

The Australian Government Cost Recovery Guidelines recommend that an assessment of activities be made against a set of questions that will assist in determining whether cost recovery would be appropriate.

3.2Economic efficiency

3.3Design principles

3.4Operational principles

3.5Conclusion

The fees that CASA issues are of a regulatory nature in the sense they are for entry control purposes, through registrations and approvals or exclusive rights to practice. CASA’s fee regulations would be considered ‘pre market’ regulation activities as an individual or organisation is not able to participate in the industry without the necessary registrations and approvals. Industry participants and enthusiasts must obtain required registrations and approvals before participating in the aviation community.

CASA also has a ‘post market’ surveillance, enforcement and safety promotion obligation for the regulatory framework. Government has decided these functions will be funded through a fuel excise imposed on the consumption of aviation fuel. There are no fees regulations for these activities.

4DESIGN AND IMPLEMENTATION

Cost recovery charges can be collected in a variety of ways and be based on varying measures of costs. The design of the cost recovery arrangements should aim to:

• have clear legal authority;
• support the government’s policy intent;
• identify who should pay for the regulatory charges;
• link charges as closely as possible to the costs of activities performed;
• be cost effective to calculate, collect and enforce; and
• ensure compliance costs of paying the charges are not excessive.

4.1Basis of charging – fee or levy